EasyJet Plc - Airline Strategy - Assignment Example

EasyJet Plc (Airline Strategy Report) Executive Summary easyJet is a globally well renowned company dealing with the low cost airline services. The external environment of every company has a major impact on the business operations. Expansion of European Union (EU) has provided the company, easyJet with opportunities of operating in various locations throughout Europe, thus providing them market development opportunity. easyJet deals in low cost airline services, which is one of the key strategies of the company. The strategies of the company such as paperless operations have certainly contributed in their profit margin. The company enjoys good market shares and has a good customer appeal. The company also operates its ticketing operations through internet being its one of the most effective measures adopted for attracting the customers. As this is very convenient for the customers to purchase the tickets direct from their home. easyJet has concentrated on providing convenient airfares for middle or lower income group consumers so that it has provided them with unique selling proposition (USP) and distinct advantage in the competitive market. Table of Contents Introduction 3 External Environment 4 Financial Performance Analysis of the Company 5 Competitive Strategy of easyJet 6 Strategic Direction of Development 11 Methods of Development 14 SPACE Matrix Analysis of easyJet 18 Conclusion and Recommendation 21 References 22 Introduction easyJet Airline Company Limited also known as easyJet is an Europe based company which was established in the year 1995. The company’s headquarter is at London. It is considered to be a leading company with respect to low cost airline business of Europe. The company operates in 580 routes (easyJet plc, 2011). The values of the company include safety, teamwork and pioneering integrity. The company takes safety as their main priority and entertains no compromises. Teamwork is the main component of their functioning. This summarise as their missions as well. easyJet’s mission statement states that, “To provide our customers with safe, good value, point to point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers” (Bizled, 2011). They believe in providing their customers with safety as their significant value proposition and point-to-point air services. The company, with this intention, is determined to offer consistent and reliable services, product and fares to its customers, they have taken necessary initiatives in developing their workers or staffs. easyJet has also taken steps towards establishing good and long lasting relationships with their suppliers. One of the main strategies of the company is that it offers airline tickets in minimum prices. This has proved to be very effective for the company (Bizled, 2011). The airline is considered to offer the air services at lower price comparatively. The services that the company include are flexible, fast, easy with convenient booking facilities and most important of all, there is no hassle travelling as the company has the facility of ticket less travelling. They are actively involved in Corporate Social Responsibilities (CSR). The environment is considered to be the key issue in case of CSR in the company. The company has put efforts in identifying the ways to reduce the impact on the environment, which in turn helps the company to attain sustainability (easyJet plc, 2011). easyJet deals in airline services as well as the company operates in arranging holidays for its clients in minimum costs as well. The paper will study the external environment, competitive strategies and strategic direction of development of easyJet. External Environment The European market is experiencing tremendous growth in context of airline services. The growth and broadening of European market provide with the new opportunities to the industry. The opportunity can be identified in terms of the availability of new routes, such as, those countries which joined the European market recently or have chances of joining it. This offers easyJet with an opportunity of operating in the new routes of the new countries, ultimately giving it the new markets to operate in. As the economic crisis has hit Europe, low fared airlines are in demand more by the customer, giving tough competition to its expensive rivals. For instance, before it was observed that the European low cost airlines could not operate in both the Larnaca and Pafos airports but with the changing condition of the airline industry, both the airports offer the opportunity of travelling cheap. The opportunity mostly experienced by the airline industry is due to expansion of European Union (EU). It has been observed that on 1st May of 2004, 10 new countries joined EU providing the industry more nations to operate in. moreover, EU has welcomed new members of about 100 million to the market of EU. This can prove to be a great opportunity for the industry dealing with low cost airline services. The expansion of EU means availability of labour in cheaper rate. As the market increases the marketer increases, businessmen increases, thus increases the customers for the airlines. Growing popularity of the internet is another opportunity of the external environment, as the internet operation of ticketing is far cheaper than the paper ticketing process. And, moreover, the internet ticketing process is less time consuming, providing the company such as easyJet with the extra time to focus on other operational issues. easyJet operates low cost airline services which are very beneficial for those consumers who are concerned about travelling to their required destination due to high price of airfare (Scribd, 2011). Technology is developing tremendously. Now-a-days, everyone is using technology as a part of their daily life. With an intention to sustain in the market, every company adopts and accommodates technology in their business strategies accordingly. easyJet too has taken initiatives in incorporating technology in its organisational operations. The unique concept of paperless operation is one example of it. The company operates paperless absolutely internet based office (Scribd, 2011). Financial Performance Analysis of the Company easyJet has experienced financial fluctuation in the recent time period. To evaluate the financial position of easyJet various financial figures have been considered from their annual report. It had been mentioned in their annual report of 2010 that gearing rate of the company has gone through fluctuations in recent 5 years. Such as in 2007, the gearing rate is observed to be 20.4% whereas in 2009 the company had experienced highest gearing rate of about 37.6%. In 2010, the gearing rate has been identified to be 31.8%. Return on equity rate of the company too has faced fluctuations, such as, in 2007, the company had return on equity of 14.3% whereas in the year 2009, the return on equity rate was less comparatively i.e. 5.5% in these five years. But again the return on equity has experienced expansion in the year 2010 i.e. 8.6%. According to the annual report 2010 of the easyJet, the company has experienced increase of about 5.1% in its revenue per seat. The company is experiencing gross profit rate of about 11.84%, in the year 2010 which has been increasing during past 5 years. This fluctuation was experienced due to the fluctuating condition of the EU and the economic crisis experienced by the European market (easyJet plc, 2011). Competitive Strategy of easyJet Porter’s generic strategic framework plays a vital role in developing strategies for the organisation. Porter’s generic strategic framework consists of Product differentiation, cost leadership, cost focus and differentiation focus strategies which help the organisation to achieve competitive advantages over its rival. There are various ways of attaining competitive advantages. A few companies gain competitive advantage by adopting lower cost or product differentiation strategies. Product differentiation is gained by the company by providing the consumers with different products that are not available to the competitors. For understanding better, the Porter’s generic model is given below: Porter’s Competitive Advantages Source: (Porter, 1985). A company develops their strategies related to their marketing approach in accordance with the four generic strategies. The adoption of these strategies depends on the functioning of the business. The following figure is provided in this context: The four generic strategies: Source: (Scribd, 2011) According to the condition of the market for airlines in Europe, the overall cost leadership strategy can be identified to be main employed method by easyJet. Cost leadership refers to gaining competitive advantages over the competitors through developing the strategies that will emphasize on lowest cost producer in the industry. easyJet has taken initiatives such as eliminating the frill, which has helped it to achieve cost leadership. The online ticket booking has contributed a lot in this strategy, as this supports in ticketless operation reducing the expense of printing tickets. Further, to support the cost leadership strategy, the company has come up with strict cost control strategies in which the airline allows no free refreshments, reduces the legroom on its aeroplane and refund is strictly denied as mentioned in their policy. By taking these steps it has been able to incorporate in its aeroplane higher seating facility. The company has eliminated business classes from their air service. This allowed the company to increase the number of the passengers by increasing their load factor (Scribd, 2011). easyJet also needs to focus on enhancing its efficiency. They have taken care of minimising their maintenance costs which in general is done by using only one aircraft type and this also further effect the company by reducing its inventories. easyJet operates differently in this situation; the company operates two types of aircraft which has proved to be very effective in generating profit. As this company is focused on providing low cot airline services, they operate point to point service system which includes no extra services, for instance, the company is only concerned about flying customers from one airport to another airport and if the customers want to fly by a hub, then he or she needs to book to separate flights. Baggage transfer facility is not provided to the customers, so the customers need to collect the baggage from another flight. If any customer misses his flight, the company bears no liabilities for it and no refund would be provided or obligation of offering another flight. This point to point service system allows the easyJet to increase the number of flights operating per day, which in turn helps the company to generate more revenue by reducing cost of unit per flight (Lawton, 2002). Resource Based View Resource based view of the firm is the combination of the internal perceptive also referred as core competencies of the organisation and the external perspective i.e. industry structure on developing the strategy. In this context, competitive advantages stand as the trait of ownership of the valuable resources which are owned by the company. Resources can be defined to be intangible (such as, the goodwill of the company, technical expertise), physical (such as, the corporate building, capital) and organisational (such as, routine of daily works, operations). These resources differ from organisation to organisation, as the different companies gain different experiences, have different assets and skills in the organisation and have different organisational culture (Peteraf, 1993). easyJet has been a leading provider in low cost airline service sector. The company has been able to gain goodwill as intangible resource. The organisational resources, such as human resources of the company are adequate and competent in nature helping it to increase efficiency of the operation effectively which in turn is enabling the company to attain sustainability. In this context, the physical resource is also a vital part of this, as the physical existence of the company is the face as well as the center of trust from the customers. The customers hardly believe in things they do not see and easyJet has its corporate house coloured in orange strongly stating its mission of turning England orange (easyJet plc, 2011). Strategic Direction of Development Strategies are very important for an organization to sustain in this competitive market. Every organization comes up with varied set of strategies. For the growth of the organization in the markets, it has to make use of Ansoff Growth vector, popularly known as Ansoff product or market matrix (Middleton, 2006). Ansoff Growth Vector Matrix: Source: (Scribd, 2011) The Ansoff growth vector matrix is considered to be an effective tool which helps the organisation to develop their strategic planning. The matrix can be classified into four dimensions; market penetration, product development, market development and diversification (Middleton, 2006). To be precise, market penetration refers to continuation of an existing strategy for the existing product. This approach proves to be beneficial for the short-term, when the environment of the market is stable and the organisation can afford to wait and evaluate the situation. However, if the organisation is seeking for long-term development, this is quite inappropriate in the long run operation as this strategy proves to be unrealistic and unbeneficial (Middleton, 2006). Product development is the strategy that deals with introducing new products to the existing market. Product development strategy allows the organisation to adopt innovation and develop new product offering to their customers with changed product range. While adopting this strategy, organisation takes into account the interest of its existing customers and the product are developed accordingly. This strategy is expensive and is involved with risk (Middleton, 2006). Market development refers to entering into a new market of different geographical area. It also includes promoting different uses of the existing product and entering into the new market segments. This strategy can prove to be very beneficial for those organisations that decide to go with the same products in various markets (Middleton, 2006). Diversification is a part of Ansoff growth vector matrix. This strategy includes penetrating a new market with a new product. Diversification can again be of three types, they are: 1. Horizontal Diversification: This represents the development of such products which are corresponding to the existing products of the organisation and even at times emerges as a competition with the existing product of the organisation (Middleton, 2006). 2. Vertical Integration: This is again quite varied from horizontal diversification. This includes such operation of the organisation where the company decides to operate in different areas within the same production path. For instance, a soft drink producing company decides to manufacture the bottles as well (Middleton, 2006). 3. Conglomerate Diversification: This is a completely different type of diversification form adopted by the organisation. In this context, the newly developed product has very little or no relation at all to the existing products of the organisation. Here, the company offers very different products from its regular products to the customers (Middleton, 2006). easyJet has adopted a strategy related to cost leadership. It has been mentioned above that the company is a leading low cost airline service provider in Europe. The strategy adopted by easyJet is market development. The company has attained it by reducing the extra hidden cost as applied by other airlines. For instance, easyJet has eliminated frill from the fares which signifies no compulsory charges for the refreshment at the flight. This helps the company to attract the passengers who intend to take flight purely for travelling purpose. As the market of Europe has expanded, the numbers of the businessmen too have increased providing the company with the maximum numbers of customers who have intention of travelling. In this context, the expansion of external environment (European Union) has provided the company with various new markets helping the company to attain market development. This strategy has proved to be fit for the operation of the business (easyJet plc, 2011). To achieve the competitive advantages, the strategies adopted by easyJet include no compromise on safety, where its main competitor, Ryanair, has not explicitly aimed it to be its prime strategy. The company is devoted towards the safety of its customers. Their vision explains that they do not and would not compromise with anyone’s safety (i.e. customers, employees and their crew members). Their strategy of end to end customer proposition focuses on development of network of airline. They are mainly focusing on development of their routes providing the company to expand its niche market. easyJet operates in more routes than one of its prime competitors, Ryanair. Whereas its competitor, Ryanair has decided upon stopping its development in the UK market, easyJet has taken steps in progressing in the UK market (Ryanair, 2011). Methods of Development Strategic management is very important for an organization to function well and achieve sustainability in the long run. Strategies are prepared by the management of the organization to achieve the objectives and the goals in the long-term basis. There are various models supporting the strategic management. Following Design School Model is taken into consideration to explain the recent development of the easyJet: Strategic Analysis – Design School Model Source: (James, 2004) In the above Design School Model, it has been clearly stated that the external and the internal environment have major impacts on preparation of strategies by the organization. So, while preparing strategies, the internal strengths and weaknesses along with external opportunities and threats are taken into consideration by the management. Now-a-days, the external environment of the industry has proved to be very beneficial for the development of easyJet. Expansion of EU has provided the organisation with various new markets and has also helped in increasing the number of the customers. easyJet had started its business in 1995, since then the company has progressed tremendously. At the start, the company functioned in merely two routes i.e. Edinburgh and Glasgow from London, Luton. Now-a-days, the company is operating in about 212 routes of around 64 European airports. easyJet has higher number of the passengers when compared to British Airways, which is about 29 million. The company operating in different ways distinguishes itself from other companies dealing in this industry. According to the Design School Model of strategic analysis, the company has been successful in gaining efficiency in its operation. The company operates without any liabilities, for instance, if any customer misses their flight, the company is not liable to refund or to offer any other flight instead (Scribd, 2011). The adoption of easyJet’s low cost business model has proved to be very effective in the company’s progress. It has broken free from the traditional approach of airlines. Recently, the company has incorporated internet based ticketing which has proved to be very effective as it has enabled them to provide the customers with very convenient service. The benefits of this method of development are that it helps the organization to approach maximum number of customers by consuming minimum time which in return is very beneficial for the company. This helps the company to operate in low cost as the use of the internet is less expensive, convenient and moreover, it reduces extra operational time. However, this method has certain challenges associated with it. The company wanted to redesign its website with an intention to add new functionalities. But the current web technology i.e. Classic ASP, does not support the changes. Moreover, everyone is not capable of operating internet; this has a likely chance of constraining the profitability of the airline (Hitachi Consulting, 2009). The paperless facility is another benefit of internet based system which has been practiced in easyJet. The development strategies of the organisation are very much inclined towards the internet based facilities provided to customers. Paperless operations signify that the company has made everything hi-tech. Every official work is done through internet enabling the company to embrace a very unique concept of paperless official operation. easyJet’s strategies have allowed the company to achieve the capability of producing goods in very low cost. This is the very strategy which has helped the company to gain cost leadership among the competitors (Cengage Learning EMEA, 2007). Though paperless operation sounds very fascinating but implementation of it can at times prove to be difficult. This approach is very new in nature and can prove to be very confusing and difficult for a few customers. SPACE Matrix Analysis of easyJet The Strategic Position and Action Evaluation Matrix also known as SPACE analysis matrix is the strategic tool used to analyse strategic position of the organisation (Research and writing, 2011). Internal Strategic Position External Strategic Position X A X I S Competitive (CA) (-6 worst, -1 best) Industry (IS) (+1 worst, +6 best) Product Quality -1 Market Share -2 Brand Image -1 Barrier to Entry +5 Growth Potential +4 Bargaining Power of the Customers +3 Average -1.33 Average +4 Total X-axis score: +2.67 Y A X I S Financial (FS) (+1 worst, +6 best) Environment (ES) (-6 worst, -1 best) Return on Equity +3 Gearing Rate+3 Profit Rate +4 Technology -2 Demand Elasticity -2 Inflation -1 Average +3.33 Average -1.67 Total Y-axis score: +1.66 easyJet has very good brand image adding to its goodwill. The airline service that it has been providing is very good. Technology of easyJet can be said to be its strong point, though it has scope to improvise. Threat of entry experienced by the industry is very low as an airline company demands heavy budget to start with. As the EU is expanding, it is providing the industry with opportunities of new markets of different nations. The company can expand its operating nations. Growth potential of the industry is very good. easyJet can operate in many other small airports where the number of other available airlines is comparatively low. This company has a good market position giving it an impressive market share. Conservative Aggressive Defensive Competitive Conclusion and Recommendation easyJet is a company that deals in low cost airline services. The strategy of the company is very adequate in accordance with the market demand. However, the company is seen to be operating only in European countries and those countries which are near to Europe. The company should expand its geographical market such as accommodating developing nations where the demand for low cost airline services is high. The low cost strategies along with elimination of frill can be considered as good strategies but the company is only concerned about boarding the passengers which can at times turn out to be less effective. For instance, if the passenger wishes to travel along with the luggage he or she needs to book another flight for it, this is not an effective measure. The strategies only focus on average income group people which subsequently ignore high economy people. The company should think about increasing the size of the legroom space. Eliminating business classes can prove to be ineffective because many businessmen prefer business class for travelling. The company can increase it competitive advantages by improving its facilities of operating the flight. The company is performing too mechanically which at times is not preferable by the customers. Industry related to low cost airline services is emerging vigorously providing the company to operate better in the market, so the company can also consider college students as their customer and provide them with group discount which can be very effective in attracting the bunch of customers. Ultimately, easyJet is the company which has very effective strategies that can prove to be helpful in future. References Bizled, 2011. EasyJet. Home. [Online] Available at: http://www.bized.co.uk/compfact/easyjet/easyindex.htm?page=9 [Accessed November 16, 2011]. Cengage Learning EMEA, 2007. Operations, Strategy and Operations Strategy. Chapter 2. [Online] Available at: http://cws.cengage.co.uk/barnes/students/sample_ch/ch2.pdf [Accessed November 16, 2011]. easyJet plc, 2011. At a Glance. About Us. [Online] Available at: http://corporate.easyjet.com/about-easyjet.aspx?sc_lang=en [Accessed November 16, 2011]. easyJet plc, 2011. Corporate Responsibility. Annual Report and Accounts 2010. [Online] Available at: http://2010annualreport.easyjet.com/corporate-and-social-responsibility.asp [Accessed November 16, 2011]. easyJet plc, 2011. Strategy and Key Performance Indicators. Annual Report and Accounts 2010. 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